After years of building a business, selling it should feel like a reward. But without proper planning, a significant portion of the sale proceeds can disappear into tax. The right structuring could have reduced that tax. However, most opportunities to minimise this only exist if you consider them well before the sale, not after you sign the contract.
Selling a business generally triggers capital gains tax on the profit from the sale. This applies whether you sell business assets, shares in a company, or units in a trust. Consequently, the structure of the sale — and the structure of the business itself — significantly affects how much tax ultimately applies.
Eligible small businesses may be able to access specific small business capital gains tax concessions. These can significantly reduce, defer, or in some cases eliminate the tax payable on a business sale. Therefore, check your eligibility for these concessions well ahead of a planned sale. This ranks among the most valuable steps a business owner can take before exiting.
Selling business assets (equipment, goodwill, stock) generally means the business entity itself makes the capital gain. The tax consequences differ depending on the entity’s structure.
Selling shares in a company transfers ownership of the entity itself. Generally, the shareholders realise the capital gain, rather than the company. Consequently, buyers and sellers often have different preferences here, since the tax outcomes differ for each side of the transaction.
A business sale can result in a substantial one-off capital gain. Because of this, the timing of the sale — including which financial year it falls into — can significantly affect your overall tax position for that year. Therefore, plan this around other income and events, rather than simply completing the sale whenever a buyer is ready.
How you structure the sale — including earn-outs, deferred payments, or vendor finance arrangements — can also affect when and how tax applies. Consequently, discuss these details with your accountant during negotiations. Don’t wait until after you’ve agreed on terms, when they become difficult to change.
In some circumstances, you can contribute proceeds from a business sale to superannuation under specific concessional arrangements. This may offer further tax advantages as part of a broader retirement strategy. Therefore, explore this as part of the same planning process, rather than treating it as a separate, later decision.
You need to set up, or at least consider, many of the concessions and structuring options available for a business sale well in advance. Sometimes that means years before the actual sale takes place. Consequently, business owners who start this conversation early are typically in a much stronger position when the time actually comes. This holds true even if a sale is still some way off.
EBATS helps business owners understand their tax position well ahead of a sale, assess eligibility for small business CGT concessions, and structure a sale to protect what they’ve built.
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